The case of Swift v. Tyson arose in the Circuit Court for the Southern District of New York. The matter involved a bill of exchange accepted in New York, which the plaintiff sought to enforce in federal court. Since the case was brought under diversity jurisdiction, the key question was whether the federal court was required to apply New York’s common law or whether it was free to rely on general principles of jurisprudence to decide the dispute.
This issue centered on the interpretation of Section 34 of the Judiciary Act of 1789, which required that “the laws of the several states” be regarded as rules of decision in federal courts, except where the Constitution, treaties, or statutes of the United States provided otherwise. The dispute was whether the “laws” referred only to statutes enacted by state legislatures or also included state common law.
Statute Involved
Section 34 of the Judiciary Act of 1789 was central to Swift v. Tyson. It provided that:
“The laws of the several states, except where the constitution, treaties or statutes of the United States shall otherwise recognise or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply.”
The meaning of the term “laws” was disputed. The defendant argued it included state court decisions that reflected common law. The plaintiff, however, contended that “laws” referred only to positive statutes and strictly local rules, not to judicial interpretations of general common law.
Facts of Swift v. Tyson
The plaintiff brought suit in federal district court in New York to enforce a bill of exchange. The defendant argued that under New York court decisions, a pre-existing debt did not constitute valuable consideration for a negotiable instrument, and thus the bill should not be enforced.
The defendant insisted that Section 34 of the Judiciary Act required the federal court to apply New York’s common law as declared by its highest court. The plaintiff argued instead that the federal court could interpret general principles of commercial law independently, without being bound by state common law precedents.
Issue
The central issue in Swift v. Tyson was:
In cases of diversity jurisdiction, are federal courts bound to apply state common law, or may they exercise their own judgment in determining general principles of jurisprudence?
Rule of Law
The Supreme Court in Swift v. Tyson held that:
- Federal courts exercising jurisdiction based on diversity of citizenship must apply statutory state laws when enacted by the legislature.
- However, in matters of general jurisprudence—particularly commercial law—federal courts are not bound by state common law decisions.
- Instead, federal courts may exercise independent judgment to determine the principles of general common law that should govern the case.
Swift v. Tyson Judgment
The Supreme Court ruled in favor of the plaintiff. It decided that a bona fide holder of a negotiable instrument for valuable consideration, without notice of any defects, and who takes it before it becomes due, acquires good title to the instrument.
The Court further held that a pre-existing debt constitutes valuable consideration for a negotiable instrument under the general common law of commercial jurisprudence. Thus, the plaintiff was entitled to recover on the bill of exchange despite the defendant’s objections.
The Court also clarified that Section 34 of the Judiciary Act of 1789 did not restrict federal courts from developing their own understanding of general common law.
Reasoning in Swift v. Tyson
Justice Joseph Story delivered the opinion of the Court. The reasoning in Swift v. Tyson rested on several points:
- Nature of Common Law: The Court explained that common law is not strictly local but represents broad principles of jurisprudence. While state statutes and interpretations tied to local matters—such as property rights—must be applied, commercial law falls within the realm of general jurisprudence that transcends state boundaries.
- Interpretation of Section 34: The phrase “the laws of the several states” in Section 34 of the Judiciary Act referred to statutes and rules with local application, not to state judicial decisions on general commercial law. Federal courts were not bound to follow such decisions but could instead look to broader sources.
- Authority of Federal Courts: By distinguishing between local law and general law, the Court gave federal courts freedom to interpret general common law independently. This independence allowed federal courts to promote uniformity in commercial law across different states.
- Commercial Considerations: In the specific matter of the bill of exchange, the Court held that commercial jurisprudence recognized a pre-existing debt as valuable consideration. This principle ensured that negotiable instruments could circulate freely and reliably, which was essential for commerce.
Conclusion
Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842) stands as a pivotal decision in the history of American law. By holding that federal courts in diversity cases could disregard state common law and instead develop their own general principles of commercial jurisprudence, the Supreme Court introduced the doctrine of federal general common law.
This decision sought to promote uniformity in commercial law but also gave rise to unpredictability and forum shopping. While it was ultimately overruled by Erie Railroad Co. v. Tompkins in 1938, the case illustrates the evolving relationship between state and federal law in the United States.